Emerging market equities including India have seen a decent rebound last week after a brutal start to September. But the big question still remains- are emerging markets in for a fresh round of selling?

A large part of the move will ofcourse hinge on the currency market. The dollar is showing no signs of topping out and emerging market currencies including the Indian rupee remain quite weak. This week will test the rebound of last two days especially in India, where after a long time, the government talked up the market.

On Friday, there was huge short covering by foreign institutional investors(FIIs) in both futures and options. However, they are still aggressively net short on the market. Also, the Niftyâ€™s high on Friday was just a shade below the 20 designated market area(DMA) while the recent low is very close to 50 DMA.

There is 50:50 chance of one of the two events happening-1) The market had a classical counter trend rally which has peaked out at 20 DMA 2) The market has taken support at a major level of 50 DMA and is now ready to reverse back to all-time high.

This week will give us some clue as to where we are headed. If we aggressively sell into the recent strength, then scenario '1' plays out. If, however, the market climbs above 11,600 and sustains there even for a day or two, then the second scenario has higher probability.

The Indian equity market is at the cusp of a major 500 point move on the Nifty, perhaps as early as by end of first week of October. The only problem-one doesn't know the direction in which it will move. The best would be for the market to decide that for us and then trade in that direction.
TagsEmerging Market Market nifty Views

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